The municipal market was slightly weaker yesterday, following Treasuries, which showed losses following stock market gains due to a stronger than expected January retail sales report.

Traders said tax-exempt yields were lower by as much as three or four basis points on the long end, and unchanged to lower by one or two basis points on the short end, in fairly light trading.

"There's a number of people that are kind of disturbed about the fiasco that's going on in the auction-rate market, and they are trying to continue to buy short-term [pre-refunded bonds]," a trader in Los Angeles said. "That's the one area that we do see a lot of activity in - real short ones - and more so than just short bonds that are insured, or short bonds that are uninsured, they basically seem to want to stay in prerefunds if they're going to commit at all. The rest of the market's just been sort of wandering all day."

The trader added that yesterday's was "a lot of nothing."

"That's what's discouraged me so much about it. The marketplace, it's almost like they're taking off on vacation now," ahead of Monday's Presidents Day holiday, the trader continued. "These three-day weekends are turning into five-day weekends It's now becoming lack of activity. I haven't seen anybody aggressively looking at the marketplace, but there are still people out there that are willing to commit some capital, but it's at cheaper levels. That's kind of the theme of the day, and probably will be the theme [today and tomorrow] as well."

Bonds from an interdealer trade of California 5s of 2037 yielded 4.94%, up four basis points from where they were traded Tuesday. A dealer sold to a customer insured Kentucky State Property & Buildings Commission 5.25s of 2013 at 2.82%, two basis points higher than where they were sold Tuesday. A dealer sold to a customer Golden State Tobacco Securitization Corp. 5s of 2033 at 2.96%, three basis points higher than where they traded Tuesday. Bonds from an interdealer trade of insured Colorado's Regional Transportation District 4.5s of 2034 yielded 4.61%, up three basis points from where they sold Tuesday.

"The market is kind of quiet, but it's off a little," a trader in New York said. "We're not seeing a whole lot of trading going on. It looks like bid side's starting to weaken up a little in areas where there was some strength. I'm seeing some offerings that won't affect the scale so much but are just a lot cheaper than where they should trade. I think people are just having a hard time moving bonds."

The Treasury market showed very slight gains on the short-end, but losses throughout the rest of the scale. The yield on the benchmark 10-year Treasury note, which opened at 3.66%, was recently quoted at 3.68%. The yield on the two-year note was quoted recently at 1.89% after opening at 1.91%.

In economic data released yesterday, retail sales rose 0.3% in January after a 0.4% dip the previous month. Retail sales excluding autos climbed 0.3% in January, after a revised 0.3% decline in December. Economists polled by IFR Markets had predicted a 0.3% drop in retail sales and a 0.2% gain in sales excluding autos.

Business inventories climbed 0.6% in December after a 0.4% uptick in November. Additionally, business sales fell 0.5% in December after a revised 1.4% increase the month before. Economists polled by IFR had predicted a 0.4% rise in business inventories and a 0.6% drop in business sales.

In the new-issue market yesterday, Merrill Lynch & Co. priced $70 million of housing and community services department mortgage revenue bonds for Oregon in two series. Bonds from the larger series, $54.9 million subject to the alternative minimum tax, mature from 2010 through 2017, with term bonds in 2026 and 2038. Yields range from 2.625% priced at par in 2010 to 4.22% with a 6% coupon. Bonds from the smaller $15.1 million series are not subject to the AMT and mature in 2009, and from 2018 through 2022. Yields range from 1.65% in 2009 to 4.125% in 2022, all priced at par. All bonds are callable at par in 2018. The credit is rated Aa2 by Moody's Investors Service.

St. Paul competitively sold $46.7 million of bonds in three series. The city sold $23.7 million of sewer revenue bonds to UBS Securities LLC with a true interest cost of 3.97%. The bonds mature from 2008 through 2027. A $12.5 million series of general obligation street improvement special assessment bonds were sold to Piper Jaffray & Co. with a TIC of 3.99%. Those bonds mature from 2009 through 2028. And the smallest series, $10.5 million of GO public safety bonds, was sold to UBS with a TIC of 4.24%. The bonds mature from 2009 through 2025, with terms in 2028 and 2033. None of the bonds were formally re-offered. All bonds are callable at par in 2018. The credit is rated Aa2 by Moody's and AAA by Standard & Poor's.

Also, the Chesterfield Township Board of Education in New Jersey will competitively sell $37.7 million of school bonds to Citi with a net interest cost of 4.50%. None of the bonds were formally re-offered. The bonds mature from 2010 through 2038, and are callable at par in 2018. They are insured by Assured Guaranty Corp. The underlying credit is rated AA by Standard & Poor's.

A slate of economic data will also be released later this week. Today, initial jobless claims for the week ended Feb. 9 will be released, in addition to continuing jobless claims for the week ended Feb. 2. January import prices will be released tomorrow along with January import prices, January industrial production, January capacity utilization, and the preliminary February University of Michigan consumer sentiment index.

Economists polled by IFR Markets are predicting 343,000 initial jobless claims, 2.780 million continuing jobless claims, a 0.5% increase in import prices, a 0.1% uptick in industrial production, 81.4% capacity utilization, and a 77.0 Michigan sentiment reading. q

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